The Growth and Evolution of iGaming Regulation in the US

What’s the biggest barrier in terms of the slow rollout of iGaming regulation in the US?

Never before has gambling in the USA been as widely accepted as what it is now; 38 states allow sports betting, with almost all states allowing lottery and around half allowing some form of Casino gambling, with seven states permitting iGaming. Recent research suggests that 9 out of 10 adults find casino gambling acceptable to themselves or others, and almost half of all American adults participated in some form of gambling in the past year.

A number of states have gone public with their desire to regulate iGaming and have introduced bills during late 2023 and early 2024 predominantly to reduce budget deficits via taxation as they go into new election cycles; particularly New York which has neighboring states that allow iGaming where the view is that New Yorkers are already participating in iGaming but the state is not benefitting from it.

There are two obvious concerns around new states passing the bill into legislation. Firstly, around player safety and responsible gambling. The industry remains committed to protecting the vulnerable by dedicating hundreds of millions of dollars every year to provide tools for customers to gamble responsibly, train employees to monitor and engage players who need help, and fund research to prevent and treat problem gambling.

Secondly, there continue to be ongoing debates regarding the impact of iGaming on the land-based casino segment. During the pandemic land-based casinos experienced significant revenue declines while iGaming saw increased popularity due to its accessibility and convenience during lockdowns and restrictions. However, the post-pandemic period has shown promising signs for both segments. The commercial land-based casino sector has demonstrated double-digit year-over-year growth from 2021 to 2023, indicating a strong recovery from the pandemic-induced downturn. Simultaneously, iGaming has also experienced substantial growth over the same period, further suggesting that the two segments may indeed complement each other rather than cannibalize each other’s revenues.

In addition to this, Eilers and Krejcik Gaming recently published an in-depth summary into the effect of land-based casinos in regulated iGaming states and found that iGaming was in fact a catalyst for growth as opposed to cannibalization of revenues. It appears that in the comparison between states with both land-based and online casinos versus those with only land-based casinos, the states with iGaming options generally performed better in terms of revenue performance after the introduction of online casinos. The report indicates that out of the six states that have both land-based and online casinos, five of them demonstrated a positive directional change in revenue performance compared to the seven states with only land-based casinos.

This suggests that the introduction of online casinos had a positive impact on overall revenue in those states, at least within the specified time periods analyzed. This information underscores the potential benefits of incorporating online gaming options alongside traditional land-based casinos, as it can contribute to increased revenue and potentially broader market reach.
Overall, the evidence suggests that while there may be concerns about cannibalization initially, the coexistence of iGaming and land-based casinos can create a symbiotic relationship, potentially enhancing the overall gaming industry’s growth and resilience.

From an operator perspective, the introduction of iGaming cannot come soon enough. With sportsbook margins being squeezed and costs rising, some of the smaller operators are starting to review, or have decided whether to exit their US operations so increasing adding casino would result in greater profitability (and greater taxation for the state) as a high proportion of revenues, once the player acquisition phase is over, would fall directly to the bottom line.

Which states are more likely to embrace iGaming legislation in the near future and why?

The fiscal conditions of states indeed play a significant role in driving the legalization of iGaming, as states facing budget deficits seek new sources of tax revenue. This financial motivation has been observed in several states, with Pennsylvania and Michigan serving as notable examples, who both passed legislation to legalize online gaming, partially motivated by the desire to address budget deficits. The state recognized the potential tax revenue from iGaming as a valuable source of income to help fill budget gaps.

States like New York and Illinois, facing significant multi-billion-dollar deficits, are also considering iGaming bills as a potential solution. The prospect of tapping into the lucrative online gaming market could provide a much-needed financial boost to these states’ economies.

Additionally, states with vibrant land-based casino industries may seek to enable online channels to support and complement their existing properties. By expanding into the online gaming space, these states can leverage their established casino infrastructure and capture a broader audience of players.

Overall, the fiscal imperative to generate additional tax revenue, coupled with the desire to support existing land-based casino industries, serves as a powerful driver for the legalization of iGaming in many states. As more states recognize the potential economic benefits of regulating online gaming, we can expect to see continued momentum toward legalization across the country.

How do you see the iGaming market in the US evolving over the next 12 months?

Looking ahead, as hopefully more states regulate iGaming, the number of operators and suppliers entering the market will grow steadily. This expansion will likely be driven by the growing demand for interactive gaming content tailored to the U.S. audience.
Existing market leaders in the iGaming industry may face challenges in maintaining their dominant positions; both new, well-funded entrants may enter the market or those existing operators that have, or are beginning to focus on casino will compete for market share.

Casino-style gaming, including slots, table games, and live dealer games, is anticipated to experience faster growth compared to sports betting in the next 1-2 years. Operators are recognizing the higher profitability of these gaming verticals compared to sports betting and will start to ‘back the right horse’ (pun intended).

Live dealer gaming represents a compelling new vertical that combines the excitement of in-person casino tables with the convenience of online gaming. This segment is expected to see significant growth and adoption in the U.S. market and provides a great cross sell opportunity from Sportsbook into Casino.

The introduction of iGaming in populous states like New York or Illinois could trigger a wave of mergers and acquisitions, similar to what has been observed in Europe. Securing a top-tier license in newly regulated jurisdictions will provide a competitive advantage for companies particularly if it offers day one access to markets.

The technological sophistication of U.S. iGaming is rapidly catching up to European standards, particularly in areas such as game mathematics, player behavior, promotional mechanics, and responsible gaming tools. Players increasingly expect innovative features and gamified experiences from iGaming platforms.

Overall, the future looks promising for iGaming in the U.S. as legislation spreads across states. However, companies must continuously enhance their offerings to stay ahead of the competition and meet the evolving expectations of players.

For multi-state operators, how can they grow their operations in existing markets?

The strategies outlined for operators aiming to expand within current jurisdictions are comprehensive and align with current trends in the iGaming industry and whilst not exhaustive, the key ones are as follows.

Encouraging players to engage with multiple verticals within the same platform can significantly increase customer lifetime value. Implementing unified wallet functions, offering bonuses that span multiple products, and integrating loyalty programs across verticals can facilitate cross-pollination among sports bettors and casino players. Educating players about the full product portfolio through targeted campaigns is also essential for driving cross-selling initiatives.

Offering a diverse range of content, including live dealer tables and exclusive games to attract and retain players. Securing rights to popular land-based slot and table games adds freshness to the portfolio. Collaborating with game studios to develop customized games and mechanics tailored to the preferences of the U.S. audience can further enhance content variety and exclusivity.

Shifting focus from short-term revenue to customer-centric key performance indicators (KPIs) is crucial for long-term success. Prioritizing metrics such as retention, engagement, churn rate, and player sentiment over margins can foster a more sustainable business model. Growing active wallets and delivering value to players should be the primary objectives, as sustained engagement ultimately leads to monetization. Overemphasizing revenue without considering the user experience can negatively impact player satisfaction and long-term loyalty.

By implementing these strategies, operators can enhance their competitiveness within current jurisdictions and capitalize on growth opportunities in the evolving iGaming landscape. Prioritizing customer-centricity, content variety, and cross-selling initiatives are key to driving sustainable growth and maximizing player lifetime values.